An Insider’s Overview Of The Franchise Industry
Franchising operates under its own rules both legally and in a practical sense for franchisors and franchisees. In order to be successful over the long term, all players must conform or they stand a good chance of losing. While the legalities of franchising are quite extensive and subject to change, the practical and personal aspects of franchising remain reasonably constant.
First The Law
It’s old news to say that in 1979 the Federal Trade Commission published the franchise rule. But it’s never old news to state the importance of this event. The guidelines set forth required uniform disclosure of certain elements of a franchise offering. That allowed for an even more important action. Franchise buyers, for the first time, had access to disclosures that earlier were not required. In other words, buyers had more information to conduct pre-purchase due diligence. But buyer remorse and failure continues among franchise buyers because they do not take advantage of the franchise disclosure information available.
The personal side of franchising, meaning lack of due diligence by both franchisors and franchisees alike, dogs the industry. The consequences of this ignorance drag on. The result is too many unhappy franchisees and too many upset franchise systems. Just Google ‘franchise lawsuits‘ and you’ll be busy reading for a long time.
Here’s a simple example of the problem. To start, we have a competent franchisor with a great system and flawless legal compliance. But the franchisor pushes for franchise sales and ignores vetting new franchisees. Without proper vetting of franchisee prospects there is bound to be trouble. But, the franchisor does not hold all the blame. It’s a two-way street. Most franchise buyers conduct little or no pre-purchase due diligence. In other words, too many franchisors are selling franchises without vetting and buyers are buying without fully investigating the concept. This scenario plays out constantly and it’s one filled with failure. Due diligence is the most sorely lacking aspect of franchising, bar none.
The Franchise Industry Operates Under Hard Truths
We coined and have used two undeniable taglines for many years: 1. Just because a business can be franchised doesn’t mean that it should be franchised. 2. The absence of due diligence is the greatest source of franchise trouble.
To be successful in franchising there must be a quality business model with a proven track record. There are ways to measure that requirement. There also has to be an ability to help franchisees be successful. Again, there are ways to measure that. The franchise business is rugged and demanding. Knowing what lies ahead is the best preparation for the journey. Both franchisors and franchisees must conduct due diligence on each other prior to the marriage. It sounds logical but just look at the facts on franchise success and failure.
Franchise Success is All About Preparation
Good preparation should result in both personal and business insights. A good candidate for the franchise business will have a good system. Bibby Group has written about ‘franchise business systems‘ for decades. In fact, we first used the term over 30 years ago and it’s now accepted jargon in the industry. If the model is not near-perfect, the system will falter. But a quality system requires quality franchisees to operate it. These are contentious, ongoing issues for the franchisor.
Those who are interested in franchising a business and do so without competent guidance, do not understand how difficult and expensive the journey can be. Becoming a successful franchisor is not a do-it-yourself project!
One must first decide if franchising is a good fit and then decide if a particular concept is a good fit. The Focus Program for Emerging Entrepreneurs is our response to helping people gain insight into those issues. In fact, it’s the ONLY system designed to answer two critical questions: Should I really be self-employed? And if so, what type of business environment should I choose? The Focus Program also offers an outstanding primer on franchising and franchise due diligence.
One Last Franchise Business Truth For All Participants
Whether you’re a prospective franchisee or prospective franchisor, if all the pieces of the puzzle are not present, stop and rethink the proposition. No one except the prospective franchisee or franchisor should make the ‘go, no go’ decision; not friends, not family, and especially not ‘free franchise consultants’ who are actually brokers selling franchises. Do your homework and make informed decisions. Growing in the franchise business and growing the legs of a franchisor or a franchisee takes time. Get involved with competent advisers who know the franchise business. Read more about buying a franchise and franchising a business if you’re looking for more answers.